Join our daily newsletter At The Bell to receive exclusive market insights
Australian stocks face early pressure following declines on Wall Street after Federal Reserve policymakers warned interest rates may have to stay high for years to kill inflation.
ASX futures slumped 31 points or 0.42 per cent as US stocks unwound most of Tuesday’s gains. The decline points the S&P/ASX 200 towards its third loss in four sessions.
The Australian dollar fell around half a percentage point. Oil, iron ore and gold rose. Copper and most other industrial metals retreated.
The interim earning season continues today with updates from AGL Energy and Mirvac.
Wall Street
US stocks reversed much of Tuesday’s rally as Fed officials walked back some of the optimism fuelled by dovish remarks this week from Chair Jerome Powell. A string of earnings disappointments and a disastrous PR stunt by Google added to down-pressure.
The S&P 500 fell 46 points or 1.11 per cent. The Dow Jones Industrial Average shed 208 points or 0.61 per cent. The Nasdaq Composite lost 203 points or 1.68 per cent.
New York Fed President Williams dented hopes of rate cuts later this year during an interview with the Wall Street Journal. Williams said interest rates would be elevated for years to ensure inflation returned to previous levels.
“We need to retain a sufficiently restrictive stance of policy, we’re going to need to maintain that for a few years to make sure we get inflation to 2%,” Williams said.
Fed Governor Chris Waller said investors should prepare for a “long fight”.
“We have farther to go,” he told the Arkansas State University Agribusiness Conference. “And, it might be a long fight, with interest rates higher for longer than some are currently expecting.”
Economist Mohamed A El-Erian said there appeared to be a coordinated attempt by the Fed to push back against the bullish market mood fuelled by recent comments by Chair Powell.
“The tone/content of the other Fed officials who spoke today were broadly in line with Governor Waller’s. This supports the view that there may be a coordinated Fed attempt to correct the markets’ understanding of Chair Powell’s comments and tone from last Wednesday and yesterday,” El-Erian tweeted.
Investors were also digesting the latest corporate earnings. Fast food business Chipotle and Lumen Technologies were among those punished overnight for missing analyst expectations.
“This earnings season was subpar at best,” Eric Sterner, CIO at Apollon Wealth Management, told CNBC. “It takes time for these rate hikes to affect earnings. Now, we’re starting to see that.”
Stocks have risen sharply this year despite evidence of an earnings slowdown. Earnings from S&P 500 companies are on track to be lower this quarter than the same time last year, according to Refinitiv data.
“After this kind of run and a move to a valuation certainly in the richer camp, you need to have more evidence to keep the market climbing higher,” Quincy Krosby, chief global strategist at LPL Financial, said.
Alphabet shares tanked 7.68 per cent after its new chatbot displayed incorrect information during its grand unveiling at a live-streamed event in Paris.
Australian outlook
The market mood has dimmed over the last week as investors face up to the prospect interest rates are going higher than previously expected and may stay there longer. A jobs shock in the US and unexpectedly hawkish commentary from the Reserve Bank have seemingly doused hopes of rate cuts here or in the US before year-end.
The dazzling January rally was already losing momentum as the S&P/ASX 200 neared its 2021 all-time high. The index closed within 1 per cent of that peak on Friday but has since run into selling pressure.
Tony Sycamore, market analyst at IG, says the index looks overbought and ripe for reversal.
“Technically the ASX200 is in overbought territory, and for the Elliott Wave followers, there is a five-wave advance from the October 6411 low on bearish RSI divergence. A break of support at 7460 is needed to indicate that a medium-term high is in place and that a corrective pullback is underway,” he said.
All 11 US sectors declined overnight. Health, real estate and financials fared best with losses of less than 0.6 per cent.
Communication services plunged 4.13 per cent after Alphabet’s AI debacle. Utilities shed 1.71 per cent, tech 1.25 per cent and materials 0.81 per cent.
The dollar came under pressure again as the greenback rallied in expectation of higher rates. The Aussie sagged 0.58 per cent to 69.24 US cents.
The interim earning season continues today with updates from AGL Energy, Downer EDI, Mirvac, Megaport, Arena REIT and Charter Hall Long WALE REIT.
Commodities
Iron ore rebounded from a three-week low in China. The most-traded May contract on the Dalian Commodity Exchange fell 1.1 per cent in early action before swinging to a gain of 0.7 per cent at 848 yuan (US$124.99) a tonne in daytime trade.
“Prospects of strong iron ore demand due to China’s reopening and various supportive measures for the property market are well reflected in the recent price rally in iron ore,” ANZ commodity strategists said.
“Nevertheless, property market indicators are still subdued. While recent developments are boding well for demand, we expect iron ore prices to consolidate before seasonal demand kicks in.”
BHP‘s US-traded depositary receipts dropped 0.39 per cent. Earlier, the miner’s UK stock gained 0.16 per cent. Rio Tinto lost 0.42 per cent in the US and 0.49 per cent in the UK.
Oil shrugged off a seventh straight week of rising stockpiles in the US. Brent crude rose for a third session as analysts identified some evidence of improved demand for refined products.
The international crude benchmark settled US$1.40 or 1.67 per cent ahead at US$85.09 a barrel.
Gold continued to claw back heavy losses at the end of last week, rising for a third session. Gold for April delivery settled US$5.90 or 0.3 per cent higher at US$1,890.70 an ounce. The NYSE Arca Gold Bugs Index declined 0.65 per cent.
A rally in copper lost momentum as Wall Street slumped. Benchmark copper on the London Metal Exchange was lately down 0.04 per cent at US$8,921.50 a tonne after briefly regaining the US$9,000 level.
Aluminium dropped 1.47 per cent, nickel 0.54 per cent and zinc 1.85 per cent. Lead gained 1.62 per cent and tin 1.06 per cent.
Battery metal miners eased in US trade for the third time in four sessions. The Global X Lithium & Battery Tech ETF dipped 0.2 per cent on the New York Stock Exchange. The VanEck Rare Earth/Strategic Metals ETF shed 0.72 per cent.
